Accounting Scandal Digs Deep Into Caterpillar

1/21/2013 4:46AM

Caterpillar, known for bulldozers, excavators and wheel loaders, will have to write off about $580 million over alleged accounting misconduct at a Chinese maker of mine-safety equipment it bought in June. The WSJ's James T. Areddy talks about what this means for the big U.S. industrial company.

This transcript has been automatically generated and may not be 100% accurate.

I ... the ... just a Chinese ... mining equipment company has ... rested in the midst of an accounting scandal that will cost the company ... over half a billion dollars ... joining me now is reporter James Addy from Shanghai ... again chances are the E R a mining equipment and company that it bought last year ... is this a case of not doing proper due diligence ... we're hearing loss solutions ... deserve our Opel story involving one of America's most iconic ... companies in a well known for being a fairly conservative ... company Caterpillar ... there are questions of ... how much diligence they did on this so ... unusual the purchase of my equipment company here in China ... as I have ... I know that there were at when and there and for the tissue of ad companies listing in the U S in a Chinese accounting ... scandals alot came out during the period of time ... about some of the of the problems it in the ways that that Chinese companies were doing and defending their accounting ... do we know specifically ... on what some of the allegations are going on ... will Caterpillar is saying that they couldn't defrauded in some way in terms of the of the ... sales that this company was making ... it so basically the numbers so that they relied on in purchasing this company ... they haven't really told us exactly who they think is the call for ... although the two nd they suggest that it was people were writing this company in the house ... the question is ... who you know in their internal or other external advisors the continent in the euro that there was only this company ... as you say ... oh these reverse mergers companies are listed on ... stock exchanges ... with all of your IPO ... said it too will the screening when they go in when ... the tide of public company ... and that's the case here too ... usually those rays of a certain level of suspicion ... and ensuring that inside the blue there was you know when awareness that they have to do their homework here ... that somebody missed it ... panic Company caterpillars that it will write off I've I've been to five hundred and seventy million dollars ... on NSM part paid to purchase this ... company ... how is that expected to impact and that can affect the bottom line of the company ... no caterpillars is a giant company and I think that the isthe reputational from this problem the bigger of black eye for color when the financial hit ... on this is a question of how it ... will be given in this and that's ... what you see it's a company that's trying to expand in China ... its key markets in many ways coops up because of the slow construction industries in China ... because of long ... downturn in commodities prices ... that that this group ... has gripped my ... Bozo the core businesses for Caterpillar to lead the pack of time ... to stick with me make me the economy has really done ... very good to his company ... but with this particular deal was just a question of you know how this happened to the Scots ... if they add a lot of foreign nationals who are looking to acquire ten counties are probably at the King of the story closely and wondering how a company like Caterpillar ... I got itself into a one of the interesting things about that this this is pretty remarkable background of the company they got listed that they that they purchase ... of this euro money ... has come in houses American investors who were in there before ... Caterpillar GA aam duddy to the company ... so there are questions about who these people are and in what the new the new youth while they were songs cap ... thanks Fran that's James Herron the joining us from Shanghai ... for more than straight indebted Des beest dot com and ever ...